In the past week or so, we’ve seen several strategists on Wall Street put out really bullish calls on the stock market, especially in the wake of the Federal Reserve’s surprise decision last Wednesday to refrain from tapering back quantitative easing.
BMO chief investment strategist Brian Belski ratcheted up his year-end S&P 500 price target to 1800 from 1650, saying stocks could ride all the way to 1900 on continued easy money from the Fed.
ConvergEx Group chief market strategist Nick Colas argues that “the classic setup for a Q4 melt-up rally” is in place.
And Barry Knapp, one of the most bearish equity strategists on Wall Street in 2013, finally cranked up his year-end S&P 500 price target to 1800 from 1600, also on account of recent Fed developments.
Against this backdrop comes an interesting anecdote from Morgan Stanley’s (MS) top economist Joachim Fels, who says that “if you happen to be a contrarian, you should probably sell stocks till your hands bleed, and then sell some more.”
In his “Sunday Start” note to clients, Fels writes:
If you happen to be a contrarian, you should probably sell stocks till your hands bleed, and then sell some more. Why? All the five seasoned investors representing large pools of money on the panel I moderated at our 4th annual Global Economics & Strategy Day in Frankfurt on Friday were constructive on equities, and almost all of the around 200 investment professionals in the audience seemed to agree.
The consensus on the panel was that the global economy continues to recover, interest rates will rise moderately, valuations are ok, earnings will accelerate, and European equities look more attractive than other regions. The only major divergence in view was over Japan, where the bulls argued “don’t fight the BoJ”, while the bears lamented the lack of structural reforms. Still, despite the broad overall agreement, it was a lively panel discussion that even touched on diverse topics such as cows, communists, and correlations – but that’s a story for another day and I only mention it because one of my favourite colleagues asked me to.
While I have a strong contrarian streak, I confess I side with the consensus at the moment, along with our own strategists who are constructive on developed-market equities. The global macro backdrop remains supportive and is pretty much following the DM ‘Acceleration’, EM ‘Stabilisation’, and central bank ‘Accommodation’ script we laid out in our Back-to-School Global Macro Outlook three weeks ago. In fact, monetary policy now remains even more accommodative than we expected as the Federal Reserve’s FOMC surprised us and almost everybody else on Wednesday by not tapering its bond purchases.
That sounds like a pretty good snapshot of the mood on Wall Street at the moment.